Is Coal a Safe Investment Again?

After reporting third-quarter results Thursday, Peabody Energy Corp. (NYSE: BTU) jumped more than 9%, before ending the day about 3.7% higher. On Friday morning, shares tried to make a comeback, but they were trading below Thursday’s closing price. Investors just cannot believe the industry is about to turn around.

Here is what appears to be the good news:

Demand from Europe is rising.

Demand from China is rising.

U.S. demand is rising as natural gas prices rise.

Production costs are falling.

The not-so-good news is that prices remain weak, environmental policy in the United States is heavily weighted against coal, and falling production costs are due largely to mine closings.

Peabody may be the best positioned of all the U.S. coal producers, given its holdings in Australia. The stock even was upgraded to Outperform Friday morning at BMO Capital. The stock’s 52-week range is $14.34 to $29.84, and the consensus price target from Thomson/First Call is around $23.00.

Consol Energy Inc. (NYSE: CNX) has made a major move into natural gas production and said last week that it is considering “different alternatives to unlock additional value for our shareholders.” By some estimates, splitting the company’s coal and natural gas operations would give shareholders a gain of around 32%. The stock traded at $38.05 Friday mid-day, up 0.7%, in a 52-week range of $26.25 to $39.23. The high was posted earlier in the week. The consensus price target on the stock is around $44.00.

Arch Coal Inc. (NYSE: ACI) was downgraded to Underweight at Morgan Stanley earlier in the week because the company’s northern Appalachian coal competes with cheaper natural gas from the Marcellus and Utica shales. The stock’s 52-week range is $3.47 to $8.86, and it was trading at $3.97, down 0.7%, shortly before noon on Friday. The consensus price target for the stock is around $5.10.

Alpha Natural Resources Inc. (NYSE: ANR) is trying to catch the natural gas wave, having purchased leases to around 20,000 acres in the Marcellus shale play, but that is too small to be a game-changer for the company. The stock’s 52-week range is $4.78 to $10.74, and its consensus price target is around $7.10. Shares were trading down about 2% late Friday morning at $5.85.

James River Coal Co. (NASDAQ: JRCC) recently idled production at three of its Kentucky operations, and a September exchange offer for higher-coupon debt was less than a resounding vote of confidence in the company. The stock trades near $2.07, up 3%, in a 52-week range of $1.46 to $5.89. The consensus target price is around $2.40.